Ethanol: the worst energy investment of the year

Although Ethanol has been encouraged and substantially supported by the Bush administration and important investors those previous years, it has been ranked as the worst energy investment of the year. Thus it appears that Ethanol failed to substitute oil energy, and more and more analysts are beginning to claim investing in such energy was a big mistake. Consequently Ethanol sector is in a particularly uncertain and hazardous situation. Let us analyse more precisely the environment of Ethanol market.

Production and consumption encouraged by Bush administration

President Bush elaborated a plan to confront high gasoline prices. Thus this plan encouraged investment in Ethanol, which appeared to be the best alternative and substitute to oil. In fact US economy was still addicted to oil, and thus was dependent on other countries, who supply oil. The goal of the plan was to change this situation. Ethanol was also presented as a good manner to fight against the high level of oil barrel price and thus protect consumers. The government also intended to encourage oil companies to invest their huge profits in research and development or exploration.

Furthermore Bush administration tried to enhance hybrid vehicles. Thus it encouraged drivers to use for instance General Motors cars, which work with Ethanol. Consumers are encouraged with tax credit.

US government made substantial efforts in order to boost investments in oil substitutes, in order to reduce the dependence on foreign oil. Most of those investments targeted the Ethanol market. Thus the government supported farmers and small companies to invest in this energy.
Generally Bush administration has created 20 laws and incentives in order to enhance ethanol use. This trend was also adopted by most of the states.

Does ethanol really benefit to the population?

On the one hand numerous studies claim Ethanol really benefits to the environment. Thus Ethanol seams to create new activities for farmers, who can generate more profits. Furthermore it is supposed to boost employment in the US. And Ethanol would also enable the US to create a substitute to oil, which means that Ethanol would enable the US to diminish its energy imports and maybe even generate some exports.

On the other hand, more and more analysts believe there are no Ethanol benefits. In fact it does not improve the environment; it is not as environmentally friendly as once claimed. Moreover a professor of Cornwell University emphasized that ethanol requires more energy than it generates. Finally Ethanol is not important enough to change US dependency on foreign oil.

Threats


As ethanol is becoming more popular, corn demand has increased sharply. Consequently price of corn is very high nowadays. Thus ethanol production is becoming more expensive. Corn price may have a negative effect on ethanol development.
This year has been really disappointing for Ethanol companies. Inventories go up, whereas demand slows down. In sort-run, this situation is not terrible. However, it must not last long; otherwise it would be very dangerous for those companies.
Moreover Ethanol could also be affected by the tight credit. In fact lack of liquidity could sharply affect small companies who would not be able to attract investors any more.

Is a rebound possible?

The previous year, many projects were cancelled because of the bad trend of Ethanol market. Some companies also went bankrupt. In this uncertain environment, Barry Frazier, the president of Center Ethanol LLC, does not anticipate “any sort of immediate rebound”.
However some people still believe in this energy.

To sum up Ethanol future is really uncertain, and it will be interesting to see how the situation evolves in the following months.